partnership taxation issues in estate planning
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Partnership Taxation Issues in Estate Planning. By: Carol A. Cantrell Houston, Texas. Top 7 Issues with Partnerships in an Estate or Trust. IRD of a Deceased Partner Section 754 Elections Jobs Act Mandatory Negative Basis Adjustments Distributions of Marketable Securities - PowerPoint PPT PresentationTRANSCRIPT
“A Firm on the Leading Edge of Client Service”
Partnership Taxation Issues
in Estate Planning
By: Carol A. Cantrell Houston, Texas
Top 7 Issues with Partnerships in an Estate
or Trust• IRD of a Deceased Partner
• Section 754 Elections
• Jobs Act Mandatory Negative Basis Adjustments
• Distributions of Marketable Securities
• Determining “Trust Income” from a Partnership
• Allocating Taxes on Partnership K-1 Income
• Partnership K-1 Capital Gains and DNI
IRD for S Corporations
• § 1367(b)(4) – IRD of a deceased S corporation shareholder applies with respect to any item of income in the same manner as if the decedent had directly held his pro rata share of each item. (added in 1996).
Income in Respect of aDeceased Partner
• § 691(e) – For application of this section to IRD of a deceased partner, see § 753.
• § 753 – The amount includible in gross income of a successor in interest of a deceased partner under § 736(a) is IRD under § 691.
§ 736(a) Payments are IRD
§ 736(a) - all payments from an ongoing partnership in liquidation of a deceased or retired partner’s interest except § 736(b) payments.
§ 736(b) – payments for a partner’s interest in partnership property except a general partner’s share of cash basis accounts receivable and unstated goodwill in a service partnership.
Dad’s Inside and Outside Basis
Before Death After Death
Outside basis in partnership
$ 2,500,000 4,000,000
Inside basis of assets
2,500,000 2,500,000
Potential 754 adjustment
1,500,000
Mandatory Negative Basis Adjustment under §
734(b)
No § 754 Election
With § 754 Election
Basis of asset distributed
$ 1,500,000 1,500,000
§ 754 adjustment 1,500,000
Outside basis in partnership
4,000,000 4,000,000
Mandatory § 734(b) negative basis adj.
$ (2,500,000)
(1,000,000)
Distribution ofMarketable Securities
Total Partnership
Estate’s 80%
Value $ 2,000,000 1,600,000
Inside basis 1,500,000 1,200,000
Built-in gain 500,000 400,000
Outside basis @ 65% 1,040,000
Potential §754 adjustment
(160,000)
Gain on Distribution of
Marketable Securities
Estate’s 80%
Value of securities 1,600,000
Less partner’s built-in gain (400,000)
Deemed cash distribution 1,200,000
Outside basis @ 65% 1,040,000
Gain on distribution $ 160,000
With a § 754 Election
Estate’s 80%
Value $ 1,600,000
Inside basis 1,200,000
§ 754 Adj. (160,000) 1,040,000
Built-in gain $ 560,000
With a 754 Election
Estate’s 80%
Value of securities 1,600,000
Less partner’s share of built-in gain
(560,000)
Deemed distribution 1,040,000
Outside basis @ 65% 1,040,000
Gain on distribution $ -0-